Tips On Managing Your Business Finances

When it comes to your money, it can be hard to balance short-term wants, long-term dreams, and those unexpected events that are out of your control. 

Sound financial management is at the heart of every business, whether big or small. Without it, even viable and potentially profitable businesses will fail.

Business owners that track their money are more likely to reach their financial goals, so let’s dive into why you should track your numbers, what numbers you should be tracking, and how to set yourself up for business success.

Why tracking your numbers in business is important.

Tracking your numbers in business is important because it provides valuable insights into the performance of your company, including its financial and operational aspects. 

By monitoring key metrics such as revenue, expenses, customer acquisition costs, and employee productivity, you can identify trends and make informed decisions to improve your bottom line. 

Keeping track of your numbers also helps you identify areas where you can cut costs, increase efficiency, and maximize profits. In addition, it allows you to monitor progress toward your goals, measure the success of your strategies, and make course corrections as needed. 

In short, tracking your numbers is crucial for making informed, data-driven decisions that drive the growth and success of your business.

Comingling Business And Personal Money

I see many entrepreneurs make the mistake of comingling their business and personal money. I do not recommend commingling personal and business revenue for several reasons:

1. Separation of finances: Maintaining a clear separation of personal and business finances makes it easier to track expenses and income, as well as to prepare financial statements and tax returns.
2. Legal implications: Commingling personal and business funds can be seen as a breach of corporate formalities and may jeopardize the limited liability protection that a corporation or limited liability company (LLC) provides.
3. Lack of transparency: Mixing personal and business finances makes it difficult to determine how the business is performing and to identify areas where improvements are needed.
4. Tax implications: Personal and business income may be taxed differently, and commingling funds can create confusion and make it harder to report and pay taxes accurately.
5. Ethical considerations: Commingling funds may be perceived as unethical and could damage your reputation, particularly if it is discovered that you have used business funds for personal expenses.

In a nutshell, what I’m saying is it’s important to keep personal and business finances separate to maintain transparency, avoid legal and tax issues, and maintain the integrity of your business.

Put Yourself On Payroll

Another common mistake entrepreneurs make is that they don’t put themselves on the payroll.

Here are a few reasons why you should do that:

1. Tax compliance: Paying yourself a salary is a legal requirement for business owners who are considered employees of their own company. This ensures that you are paying the appropriate taxes and contributing to social security and other government-mandated programs.
2. Record keeping: Putting yourself on payroll makes it easier to keep accurate records of your income and expenses, which can help prepare financial statements and tax returns.
3. Benefits: As a salaried employee, you may be eligible for benefits such as health insurance, retirement plans, and paid time off.
4. Separation of finances: Having a regular salary can help you separate your personal finances from your business finances, which can make it easier to manage your money and track your expenses.
5. Professionalism: Paying yourself a salary demonstrates to others that you are running a legitimate business and that you are taking steps to ensure that your company is financially responsible and sustainable.

Putting yourself on the payroll as an entrepreneur is important for tax compliance, record keeping, access to benefits, separation of finances, and maintaining the professionalism and sustainability of your business.

How Much Should You Pay Yourself?

I get this question all the time. 

How much should an entrepreneur should pay themselves in their business depends on several factors, including:

1. Business revenue: The amount an entrepreneur pays should be proportional to the revenue their business generates. It’s important to make sure that the business has enough revenue to cover its expenses, including the entrepreneur’s salary, before deciding on an amount to pay.
2. Business expenses: The amount an entrepreneur pays themselves should take into account the business’s other expenses, such as rent, utilities, insurance, and taxes.
3. Personal expenses: The entrepreneur should also consider their personal expenses, such as housing, food, and other living costs, when determining their salary.
4. Industry standards: Entrepreneurs should research industry standards for salaries and use this information as a guide when setting their own salary.
5. Future growth: Entrepreneurs should also consider their future goals for the business and factor in the cost of hiring additional employees, expanding the business, or reinvesting profits back into the company.

Essentially, it’s important for entrepreneurs to strike a balance between paying themselves a fair wage and ensuring that their business is financially sustainable.

What Key Numbers Should You Track In Your Business?

Great question!

A business owner should track several key numbers to assess the performance of their business and make informed decisions. Some of the key numbers to track include:

1. Revenue: This is the total amount of money a business earns from sales of goods or services.
2. Gross profit margin: This is the percentage of revenue that remains after subtracting the cost of goods sold.
3. Operating expenses: These are the costs of running the business, such as rent, salaries, and utilities.
4. Net profit: This is the amount of money that a business earns after subtracting all expenses, including operating expenses and taxes.
5. Customer acquisition cost (CAC): This is the cost of acquiring a new customer, including marketing and sales expenses.
6. Lifetime value (LTV) of a customer: This is the estimated amount of money that a customer will spend with a business over the course of their relationship.
7. Employee productivity: This is a measure of how effectively employees are using their time and contributing to the success of the business.
8. Cash flow: This is the movement of money in and out of a business, and it is important to track to ensure that the business has enough cash to meet its obligations.
9. Return on investment (ROI): This is a measure of the return on an investment, expressed as a percentage.

Tracking these key numbers is important for a business owner to assess the performance of their business, make informed decisions, and drive growth and success.

Software to Track Your Business Numbers

QuickBooks is a popular accounting software designed specifically for small businesses, and there are several reasons why an entrepreneur should consider using it for their business:

1. Easy to use: QuickBooks is user-friendly and offers a simple, intuitive interface that makes it easy for entrepreneurs to manage their finances, even with limited accounting knowledge.
2. Automated bookkeeping: QuickBooks automates many of the tedious tasks involved in bookkeeping, such as tracking expenses and generating invoices. This saves time and reduces the risk of errors.
3. Improved accuracy: QuickBooks provides detailed reports and financial statements that are accurate and up-to-date, making it easier for entrepreneurs to make informed decisions about their businesses.
4. Increased visibility: QuickBooks provides real-time financial data and insights into the financial performance of the business, making it easier for entrepreneurs to spot trends and identify areas where improvements can be made.
5. Time-saving: QuickBooks streamlines accounting processes, reducing the time that entrepreneurs need to spend on bookkeeping and financial management.
6. Integration with other tools: QuickBooks integrates with a variety of other tools and platforms, such as payroll services, point-of-sale systems, and banking institutions, making it easier for entrepreneurs to manage their finances.

In conclusion, QuickBooks is a valuable tool for entrepreneurs looking to streamline their financial management processes, improve accuracy, and gain a better understanding of their business’s financial performance.

Wrapping Up

In summary, as an entrepreneur, it’s essential to track key numbers in your business to assess performance, make informed decisions, and drive growth and success. 

If you need more help planning your finances, drop me a message, and I’ll personally reach out to start helping you.